US 10-Year Yield Holds Decline Ahead of CPI

The yield on the US 10-year Treasury fell to 4.07% on Friday, the lowest level since early December, after a softer-than-expected CPI report reinforced expectations of Federal Reserve rate cuts this year. The annual headline inflation rate slowed to 2.4% last month, down from 2.6% in each of the previous two months and below forecasts of 2.5%. On a monthly basis, inflation eased to 0.2%, compared with expectations that it would remain steady at 0.3%. Following the data, traders increased their expectations for Federal Reserve easing this year to 61bps, up from 58bps previously. The probability of a rate cut at the April meeting rose, while pricing for December indicates roughly even odds between a rate reduction and a hold. Markets continue to assign the highest probability to a 25bps cut in June, followed by another in September. For March, investors largely expect the Fed to leave interest rates unchanged. US bond markets are closed on Monday for the Presidents' Day holiday.

The yield on the 10-year US Treasury note held around 4.11% on Friday after a sharp decline in the previous session, hovering near its lowest levels in two months as a widespread selloff across financial markets spurred safe-haven demand for Treasuries. Investors are now focused on the January consumer price index report, expected to show headline inflation easing to 2.5% from 2.7% and core inflation moderating to 2.5% from 2.6%. Earlier this week, robust nonfarm payrolls highlighted labor market resilience, although the latest weekly jobless claims exceeded forecasts. Markets currently anticipate the Federal Reserve will keep rates steady in March, with two 25-basis-point cuts priced in later this year, one in June and another in September.

The yield on the 10-year US Treasury note fell to 4.11% on Thursday, testing their lowest in over two months, tracking the sharp pullback in riskier assets in another session where global investors pivoted away from speculative positions in AI stocks and precious metals. Markets expect CPI data due tomorrow to reflect a slowdown in consumer price growth, which could pave the way for the Federal Reserve to restart cutting interest rates after their pause in the first meeting of the year. Rate traders see two cuts this year, with the first one pushed back to the second half following stronger than expected jobs aggregates for January. Still, uncertainty prevailed over potential overhauls to the Fed's balance sheet ahead of Kevin Warsh's Chairmanship in May. The incoming Chair has previously advocated against asset buying, but recently signaled willingness to coordinate measures with the Treasury to ease yields.